Macrosynthesis  

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Last Week's Recap

UK Economy Edges Towards Recession

The UK economy contracted by 0.1% in Q3 2023, underperforming initial flat projections. Services sector shrank by 0.2%, led by a 1.4% drop in telecommunications and computer programming. Despite declines in household spending and business investment, production and construction saw slight growth. Revised data also indicates stagnation in Q2, heightening recession risks.

Oil Moves Higher

Brent crude futures approached $80 per barrel, rising for a second week due to disruptions in Red Sea trade, including increased Houthi militant attacks that forced the rerouting of shipments by over 40%. Despite this, the overall oil supply is stable, mainly through the Strait of Hormuz.

China Targets Gaming

Tencent Holdings spearheaded an $80 billion market value plunge in China's top online entities after the government unexpectedly enforced new gaming restrictions. The regulations aim to curb online spending and playtime, implementing spending caps and forbidding certain game incentives.

This sudden regulatory action echoes the severe 2021 tech crackdown, which targeted various sectors and major companies. The new rules, vague yet comprehensive, sparked investor and developer confusion, leading to significant drops in Tencent, NetEase, and other related firms' market values. The shock move by the authorities has reignited fears of further governmental intervention in China's substantial internet sector.

Banks Exploit BTFP

Banks' reliance on the Federal Reserve's Bank Term Funding Program soared to $131 billion. This shift occurs as an attractive arbitrage emerges for banks, leveraging the difference between borrowing costs and reserve interest rates, suggesting a tactical response to the evolving economic landscape and potential rate changes by the Federal Reserve.

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Nike Warns of Global Slowdown

Apparel company, Nike, saw its shares fall by -12% following weak sales numbers and guidance from the CEO who noted he is seeing a global slowdown in consumer demand.

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Top Performing Sectors & Industries

Communications Services (XLC) rose the most last week (+2%), while materials companies (XME), gold miners (GDX), and water companies (PHO) outperformed other industries.

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Noteworthy Events    

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Micron

Micron's stock surged 8.6% Thursday following a robust quarterly financial report and a positive future outlook. The semiconductor company surpassed analysts' expectations in its first fiscal quarter and provided encouraging projections for the upcoming quarter.

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BlackBerry

BlackBerry's stock dropped -13% Thursday following the company's release of fiscal fourth-quarter revenue guidance that fell short of market expectations. Yes, the company still exists.

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Carnival

Carnival Corporation's stock rose by 6.2% Thursday following a fiscal fourth-quarter earnings report that surpassed expectations. The company reported an adjusted loss of 7 cents per share, which was better than the anticipated 13-cent loss. Additionally, Carnival's revenue for the quarter was $5.4 billion, exceeding the forecasted $5.31 billion.

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FedEx

FedEx shares plummeted over 12% Wednesday following a reduction in their revenue forecast, driven by decreased demand. The company's recent quarterly results fell below Wall Street expectations, leading to a revised fiscal year projection of a low-single-digit revenue decline, a downgrade from earlier predictions of stable sales. This announcement also adversely affected shares of UPS, a competitor, which saw a 1% drop.

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Argenx

U.S. shares of Netherlands-based biotech firm Argenx fell sharply by over 25% Wednesday. This decline followed the company's announcement that its therapy for an autoimmune disease causing skin blistering failed to demonstrate significant effectiveness in a late-stage clinical trial.

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CASE STUDY: CONN +33.7%

Conn's, Inc., a specialty retailer, announced a significant merger with W.S. Badcock LLC December 18th afterhours, creating a major home goods retailer with over 550 stores across 15 states and an estimated $1.85 billion in revenue. This merger combines their respective credit platforms and expands Conn's southeastern U.S. presence. It's expected to generate $50 million in cost synergies and bring $125 million in additional liquidity.

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Following the announcement, CONN jumped over +33%. But that's not the lesson here. The lesson here is what happened afterhours.

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If you look at the chart below, the stock sold off by panicked, individual traders. The next day, the professional investors came in and scooped up shares, driving up the price.

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Afterhours action cannot be trusted, especially for companies with thin trading volume where a few dozen people can "alter" the price temporarily.  Trading volume matters in setting the correct pricing for a company and it pays to be patient, trust the data, and not overreact.

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The LevelFields Team